Thanks, everyone. Thanks so much. We've had a really successful first morning of the conference, and now I'm really, really pleased to welcome our first keynote. One speaker of the forum this year, David Rubenstein. David is the Co-founder and Co-Chief Executive Officer of The Carlyle Group. The company is about 25 years old. It has about $157 billion of assets under management, and it's a fully fledged diversified alternative asset manager, which we'll hear how David and his partners Bill Conway and Dan D'Aniello have grown over the last 2.5 decades. I think what David and his team are most proud about is, their in excess of 30% IRRs that they've delivered to their limited partners and, now, their public shareholders over the past year.

I'm not sure if any of you -- many of you noticed, but this is -- Carlyle is actually David's third professional career out of school. He graduated and practiced law before joining the Carter administration and then founding Carlyle thus thereafter. I think one of the things that I appreciate in getting to know David and his team working through the Initial Public Offering last year is their relentless focus on shareholder MLP value creation. We saw that through the team's hosting of over 500 investor meetings and recently winning the FR IPO of the award -- of the year award in 2012. In addition to his day job, as many of you know, David is very active on the philanthropic fronts. Some things that come off top of mind are his involvement with the John F. Kennedy School of Performing Arts. He's a regent at the Smithsonian. He is head of the economics club of D.C., which has a great website with great interviews. If any of you have not seen them, they're worth checking out. And then a couple other interesting ones that I think about, including his work with the National Zoo in the giant panda exhibit, as well as his personal work with the Washington Monument.

So without further ado, I just wanted to introduce Carlyle's Co-chief Executive Officer and -founder, David Rubenstein.

David M. Rubenstein

Thank you very much. Our -- some of you may be wondering why I was interested in pandas, and let me just open by describing what that was about. I'm a regent at Smithsonian. And the Head of the National Zoo, which is owned by the Smithsonian, came to the presentation of regents and said that the pandas that we have in the National Zoo are -- might have to go back to China because they've been rented. When Mao Zedong and Richard Nixon met in the early '70s, Mao Zedong gave Richard Nixon 2 pandas to take back to the National Zoo. They were the only pandas in the United States at the time. They died a number of years ago. And the Chinese decided that what they would do is they would pandas, going forward, and they would rent them really because they needed the money to help with panda reproduction. And what -- why is that? Well, it turns out that, while there are 7 billion people in the face of the earth, there are only 1,600 pandas. And why are there so few pandas? They are very precious. And some people would say they're the most popular species on the face of the Earth. 99% of all the species on the face of the Earth are gone. There are only 5 million species left. Humans are 1 species, 7 billion of us; and there are 1,600 pandas. And why there are so few pandas? Well, because of evolution or God, depending on your point of view, pandas were given a reproduction system that's very unique. The pandas can reproduce only 4 hours a day, 1 day a year. So think how few people there would be if people could reproduce only 1 day a year for 4 hours.

Well, it turns out that, if you only had 4 hours to do this 1 day a year, you're really inexperienced. And so when the pandas get together in the wild or in captivity, the parts don't go where they're supposed to go, and that's because they don't have a lot of experience. And so in captivity in China, the pandas are shown movies of pandas mating. They give them the idea of what they're supposed to do. And they don't get the idea because, while they have a big head, there's a small brain and they're eyesight isn't that good. So it doesn't really work. And the result of it is that we have very few pandas, because the mating process doesn't work. And I analogize it to Congress: Members of Congress know what they're supposed to do, but they don't really do it. And the same is true with the pandas. The members -- the pandas know what they're supposed to do, and they don't really do it.

Unfortunately, when I've explained this to some people recently in Washington, I was followed by Nancy Pelosi. And she was asked, "Well, do you really think pandas are like the members of Congress?" She said, "No. Actually, pandas are much better than members of Congress in knowing what they're supposed to do compared to the members of Congress."

So that's my interest in the pandas. And they actually are reflective of, unfortunately, what's going on at Washington. I can later, and we'll get into this, some questions about what's going on in Washington.

But let me -- in my couple of prepared remarks I'd like to give before we have a Q&A with Howard, I'll talk about a few things. First, I'd like to talk about what really happened to the private equity market, how it's changed since the golden age. Some of you may remember the so-called Golden Age. Private equity more or less started in the late '60s and it went with a few interruptions pretty well up until about 2002. And it was doing well, but not in the Golden Age. And then, 2002 -- after the tech bubble burst was behind us, 2002 to 2007 was a Golden Age. The biggest deals were done. The most fundraising was done. The biggest exits were occurring. The total amount of deals done in 2007, the peak year, was -- about $860 billion of global buy-out deals were done. About $650 billion of capital was invested in those years and about $120 billion was distributed back to investors. So the most money invested, the most deals done, the most distributions back. It was a really good time for private equity where investors were very happy, deals were being done in large sizes, funds are being raised in large sizes. But then inevitably, it ended with the recession. And so from 2002 to 2007, there was the so-called Golden Age; and then from 2007 to 2012, what I'll the age of challenge and recovery. In the 5-year period after that Golden Age, a lot of challenges happened to the private equity.

Challenge number one was, all the deals that were done in the Golden Age, would they survive? Number two, would the firms themselves survive, because they had done some many deals that didn't look good. Would they be around? Number three, would investors fund their capital calls? Would investors really ever want to invest in private equity or even honor their existing capital calls? Would the government come along and say, "Enough of this. We're not having any more private equities. It's too dangerous," and so forth. And would, in the end, the investment world view private equity as such a risky business that, in the end, it wasn't even considered worth large organizations investing in again?

So that's the beginning of the age of challenge and the age of recovery. And what happened as we ended that period of time in around 2011 and 2012? What actually happened is this: It turned out that, of the 25 largest deals done in the bubble period at the time -- that were the Golden Age, now -- it's what then called, it's bubble period now, only about 2 of them actually went bankrupt. Some deals were done at very expensive prices. At hindsight, they didn't look so wonderful, but they were done on terms with favorable debt, and the organizations themselves spent a lot of time rolling up their sleeves and making sure the deals worked. And some of those 25 deals have gone public now and have done spectacularly well for the investors. Some did less well. But in the end, these deals didn't turn out to be the problems that people thought.

Second, it turned out that no limited partner, actually, of any consequence, defaulted on their limited partner obligations. And during that period of time, 2008, '09, '10, a lot of deals weren't done, but investors honored their commitments, and with very few exceptions, virtually no defaults occurred. And so the limited partner-general partner situation did work out pretty well. Now the general partners and the limited partners, during that time, did have their different disagreements. The limited partners said, "We thought we were going to get better returns and more frequent distributions when we signed up. And you haven't delivered that kind of returns. Maybe the deals didn't go bankrupt and the returns are not quite as high; maybe the fees were higher than we would like. Maybe the terms should be structured." So during this period of time, the general partners and limited partners did change the ratio -- the relationship a bit. They changed some of the terms, but basically, the basic economic construct did stay the same.

The general partners themselves, while some of them did have some problems, virtually none of them went out of business. While about 1/3 of the hedge funds went out of business, virtually no private equity fund went out of business. The reason is the money was stickier, it stayed with them, and they worked their way through these problems. What they did is this: They rolled up their sleeves and they had the operational people in their firms really go in and make these companies work. They did much more work to keeping these companies alive than they thought they would have to. They bought back their debt at discounts. In some cases, they put in more equity. But in the end, most of these companies actually work. They have their returns pretty good. And some of the funds done in those period of times will have pretty good rates of return, certainly better than almost anything else you could do at the time -- in that time period.

The government -- what did the government do? We'll, the government came in and said, "Well, maybe we should look at -- private equity may be your cause of systemic risk." So they were hearing some things like that. But in the end, the 2,000 -- 3,000 -- 2,300-page Dodd-Frank bill basically said, as to private equity, "You're not a cause of systemic risk. We're not really going to require very much of you. If you have more than $50 million of assets, you have to register with the SEC." That was essentially it. The Volcker Rule did affect private equity but not in a way that hurt the private equity firms so much it hurt the banks that might have been in private equity.

So as a result of all these things that happened during this age of challenge and recovery, is that, in the end, many of the things that people worried about when they went into this post-bubble period actually didn't turn out to be so such a big problem. The general partners didn't go away. Limited partners honored their capital commitments. The biggest deals that we done at the top of the market, more or less, many of them worked out; some didn't, but many of them did work out. The returns overall we pretty good. The government said, "Okay, we're not going to do anything to affect this industry. You can go forward."

So now as we stand in 2013, where -- what's the situation of the private equity industry? Well, a couple things you can conclude as a result of what's happened over the last 5 years or even 10 years. Number one, the general view is that this is not an alternative investment business anymore. It used to be called private equity or alternative investments, but now it's generally recognized that, if you're an investor, you need to have in your portfolio some type of private equity. Call it alternative investment, but then generally it's not really alternative, it's now mainstream. Private equity is accepted in the United States and around the world as an acceptable way and a very safe way and a very necessary way to get high rates of returns. So the asset class is now, I think, much highly -- more highly regarded than it was 10 years ago, 15 years ago, 20 years ago, maybe even 5 years ago.

Secondly, what people have realized is that the rates of return that private equity performed for its investors over this period of time of 5 or 10 years or so, particularly during the bubble period of time, was better than virtually anything else people could do with their money legally. And as a result, more and more people now want to put money into private equity than they did ever before. Now private equity fund raising hasn't come back to the level it was in 2007, that was a peak year, but we're increasingly seeing individual investors coming in, in greater amounts than we ever saw before. High-net-worth individuals, medium-level individuals and even, more or less, retail investors are coming in because they're not happy with the rate of return they're getting in their bank accounts or in mutual funds and other things. So we're seeing more and more money coming in and more and more interest from individual investors.

We're also seeing that the economic construct of private equity is more or less going to be the same going forward as it has been. And the economic construct was put together in the late '60s and early '70s. It was essentially a fee on committed capital and a 20% carry for the -- for profit share. And while there was some change over the years and there were some fees that were collected and some preferred returns came in and some of the changes that occurred in the last couple of years were ones more favorable to limited partners, in the end, the economic construct that's started 40 years ago is more or less still intact and likely to be, going forward, which is a fee on committed capital and then 20% carried interest, and that's basically going to stay the same.

We are also seeing that, as we go forward, the firms that went public during this bubble period of time or post-bubble period of time are actually now pulling away from the rest of the private equity firms, in this sense. These firms have diversified. They are not just in private equity. There are many different types of alternative investments, and they are gaining an increasing market share of the available dollars going into private equity. And that's in part because they represent solidity, they represent the idea that the investors know that they're going to be around, they have pretty good track records and the people feel that these are organizations that you can feel comfortable investing in for 5 years or 10 years, which is what often the term of these investments.

So as a result of all of this, today, I think private equity is going to be -- for some time, a very strong asset class, it's going to get a great -- greater share of the investment dollar. Those firms that went public and have done reasonably well as public companies, I think, are going to get a bigger and bigger share of the overall money going into this area. The economic construct of 20% carry, which is really what the business is all about, is likely to stay the same. And the government is more or less going to leave the industry alone. Now the there will be fights in Congress over the taxation of carried interest. It's my own view that it's not likely to have any -- see a major change in the near term. But always -- when there's a discussion of raising money, carried interest will be talked about, but in my view, it's unlikely that anything would change for the near future and partly because carried interest taxation fix up a very modest amount of money. We're running a 1.3 annual -- $1.3 trillion annual deficit. We're likely to have $10 trillion of additional debt over the next 10 years. And if you were to change carried interest, you might pick up $5 billion over 10 years. It's a very modest amount of money. I think many members of Congress are worried that, if the United States leads the world in private equity, we lead the world in venture capital, and should we take the risk of disrupting this industry, and maybe getting rid of what is so much -- or such an important thing for our country, which is a very vibrant private equity industry and a very vibrant venture capital industry. So I don't that changes are likely to occur anytime soon.

So that's my general assessment of the market. Let me tell you -- and the second part of what I'd like to talk about briefly is about Carlyle. Some of you have -- know a little bit about Carlyle. Some of you maybe never heard of Carlyle. Let me tell you a little bit about the firm.

You heard a little bit about my background, it wasn't as good as you heard. I was a lawyer, but I wasn't a very good lawyer. If I was a good lawyer, I'd still be practicing law. I was Peter Principled as a lawyer. And every time I said I was going to leave, one of my clients or one of my partners dissuaded me. So I didn't very -- do very well as a lawyer, and that's one of the reasons I had a chance to start a private equity firm. I did work in the White House as a young man, under President Carter, but I managed to get inflation to 19%. It was very difficult to do. And as a result, President Carter feels he was not re-elected because there was a rumor I'd be the senior domestic adviser if he is reelected. And with the strength of that rumor, he thinks he lost the election. So I back and practiced law, and again I wasn't really good at it. But in 1987, I read that, on average, entrepreneurs tend to start companies between 28 and 37, and after 37, the chances of you starting a company or doing something entrepreneurial is very reduced. And of course, there was always Mark Zuckerberg or Bill Gates, but I was not them and I hadn't dropped out of college to start a company, but I read that, on average, let's say, 28 to 37, is when the -- most companies are started by entrepreneurs, and I read that when I was 37. So I said, "Okay, I'm not a great lawyer. There's no demand for me to go back in government. So I'm going to do something that never has been done before: I'm going to set up a buyout firm in Washington D.C."

I did it in Washington because I happened to be living there. Now there's a former senator in the United States named Edward Dirksen who famously said, "When you're getting kicked out of town, get out and pretend you're leading a parade." That means, take advantage of the situation you find yourself in. I found myself in a situation where I was living in Washington. I didn't know people in New York. If I'd moved to New York to start a buyout firm, people would have laughed at me. So I decided to recruit 3 young -- 3 other guys who had MBAs, actually were qualified to do this more than I was, and I brought them together. I mumbled that I had some money, but I meant to say later that I was going to get some money, and then I went out. When they came on-board, 2 from Marriott and 1 from MCI, I went out and I spent 6 months raising $5 million. It took me 6 months to raise it. It was the hardest money I ever raised. We had 4 investors. And it was very difficult to raise that money. Today, as you heard, we now manage about $175 billion. We have now invested $83 billion of equity.

Over the 25 years, it's had a gross internal rate of return of 30% per annum. We don't think anybody else has invested as much as that $83 billion with a 30% gross internal rate of return over 25 years. We now have of people -- from 4 people in the firm, we have about 1,400 people in 50 -- 1,400 people in the firm, and 1,400 people in the firm are invested in -- or in -- operating out of 32 offices around the world out of 21 countries. We actually have 600 people doing deals, more than any other firm in the private equity world, about half of them are in the United States and half are outside. We're the largest private equity investor in the emerging markets, by far, like China and Brazil, and we did that a long time ago in getting into those markets.

We now have about $39 billion of dry powder, money to invest, but we also have $62 billion in the ground ready to ultimately harvest. So we have $62 billion of private equity money and $12 billion of hedge fund money that's already invested and ultimately, over the next couple of years, will be liquefied. What we also have is the largest investor base in the private equity world. We have 1,400 institutional investors from 76 countries. 76 countries. I've been -- unfortunately or not, I've been to all those countries, helping to raise this money. And as a result of that, we think we've got an investor base that is loyal as anybody else's. In fact, 10% of our capital comes from investors who own 20 more -- or 20 or more of our funds. We actually operate about 100 private equity funds and about 64 funded funds.

We are divided into 4 different businesses: Corporate Private Equity, which is our best-known business where we operate buyout funds in the United States, Europe, Asia, Latin America, Middle East, Japan and sub-Saharan Africa. Those funds have about $53 billion of assets under management. We have a separate business of more liquid businesses, we call it Global Market Strategies. These are hedge funds or CLOs. We're the second largest CLO manager in the world. And that's has about $39 billion of assets -- about $32 billion of assets under management.

We have a Real Assets business, which is real estate, energy, infrastructure. That's about $29 billion of assets under management. And then we have fund of funds business, the largest private equity fund of funds business, about $45 billion of assets under management.

So those are our 4 key units. And you might say to yourself, "Well, how did a group that is based in Washington D.C. that didn't have any investment bankers at the start? How did this group manage to get where it got? How did it build essentially one of the largest private equity firms in the world, with a track record like that? So let me tell you how we did it, and let me tell you where I think we're going to be able to do -- what we're going to be able to do in the future and whether we can replicate this.

So in the first question, how did we do this? Well, obviously, luck is an important thing in life, and we were lucky in many different ways. But we had a couple of things that went in our favor. One is we had 3 people who were running the firm, and the 3 of us got together. Now all of you who are married know that being married is very difficult. I am one of the few founders of a private firm who's still on his first marriage. So being married is not easy, but having a 3-person marriage is even more complicated particularly in business. But there were 3 of us who ran this company for about 25 years. We each had their own area of responsibility. We respected each other, and we worked together quite closely. We decided to instill in everybody a culture of what we call One Carlyle, which is to say we always put the firm ahead of the individual and we always put the investors ahead of the firm. So we've inculcated in our a people that the investors come first, investors in our funds come first; the firm comes second; and the individual comes third. And as a result of that, we've been able to build a culture that's very unifying. The best thing you can say about any business that continues for a long time is it has a very healthy culture. And so in our firm, people want to work there, people rarely leave. Surely, voluntarily, people almost never leave.

And we also have built a culture of investing alongside our investors: We have $6 billion of our own money invested alongside our investors in our funds. No other firm has anything close to that. And as a result of that, our investors have become pretty loyal. We also were able to do this by doing some things that disrupted the private equity industry. Some people have heard of Clay Christensen, a famous Harvard Business School professor. He basically wrote a book called The Investor's Dilemma, and the essence of it is to saying that, when new companies along, the people on the top of the hill don't pay attention to people on the bottom. So when Toyota came along, General Motors didn't pay attention to these people making these small, inexpensive cars. But ultimately, Toyota's business model disrupted General Motors'. And we did the same thing: When private equity was being done in late '80s, when we came along, it was being done by people who had 1 fund at a time. Their partnership agreements forbade you to have more than 1fund at a time. So KKR went to be the RJR deal on 1989. It only had 1 fund, 7 investment professionals. We came along and disrupted the business model by basically saying, "We're going to have multiple funds". We're not going to just have 1 fund. We'll have a buyout fund, a venture fund, a growth capital fund, a real estate fund. Centralizing in Washington the infrastructure, the fundraising, the legal, the tax, the accounting and so forth. And we will then have investment professionals managing each of these funds, they will be able to focus on that, we'll be able to build out a family of funds and make it an institutional business. And by doing that, we institutionalized private equity. We, in effect, disrupted the mom-and-pop business that had been around for a long time by making it more institutional. Now you would say that's -- "What's so brilliant about that?" Well, at the time, nobody actually had a family of funds. Fidelity had it, or T. Rowe Price had it. Mutual funds had it, but nobody in private equity did.

The second thing we did to disrupt the market was to globalize the business. We were the first one to say we'll go to Europe, we'll to Asia, we'll -- other parts of the world. We have dedicated professionals who work full time for us, who are all local people. No Americans or Yankees overseas: local people, and we globalized the business.

And the third thing we did that disrupted the market was that, historically, private equity people raised money in a very genteel way. And they did it like a presidential campaign: Once every 4 years, you're very nice to people and you tell them good things, and then you see them again 4 years later. Because we have multiple funds, we had to basically raise money on a more regular basis. So we created an internal fundraising operation, which had never been done before in private equity. It's now the largest in the world and it's responsible for, really, the -- our ability to have this large investor base and its investor base which invest in multiple numbers of our funds. 60% of our capital comes from investors in 6 or more of our funds, but the very loyal investor base and virtually anybody of size in the private equity world who invest in private equity is in 1 or more of our funds.

So that's some of the things we did. We institutionalized the business, we globalized it. We had perpetual fundraising operation that made money regularly available to us. We had a track record that people seemed to like. And we also made obsessed -- obsessive things about our culture and returning money to our investors. We return more money to our investors than anybody in the history of private equity. Last -- 2011, we gave back to our investors $18.8 billion. In that year, no other 3 private equity firms together gave back $18.8 billion to their investors. We were obsessed with making sure our investors would like us and would keep investing with us, and we did that by giving them back money. And we continually thought that was the most important way to measure our success: giving money back to our investors. Over the last 2 years, while we haven't released the fourth quarter numbers yet, we will -- we've given back to our investors, let's say, well in excess of $35 billion. And no other 2 private equity firms -- or no other 3 private equity firms over the last 2 years have given back as much money as we have.

So that's how we did it. We got lucky. We were based in Washington, we took advantage of it. We have a very good culture. We had 3 partners that got along quite well, which is unusual to have 3 people get along very well for 25 years. We obsessed on our investors. We put our own money in. We have a very good track record. We institutionalized the business and we globalized it.

A question, you would say, is, "Okay, can you do this in the future? All right, it was nice the last 25 years, but can you do it again?" Obviously, nobody can predict the future very well. The -- predicting the future is very difficult. I remember, in one of the organizations I'm involved with, the Kennedy School -- when Mikhail Gorbachev went to the Kennedy School not long ago and I was there when he was asked the question by a student, "Well, how will the world be different if Nikita Khrushchev have been assassinated in November of '63 instead of the man, after this -- whom the school was named, President Kennedy?" And without missing a beat, Mikhail Gorbachev, after the translation, said, "Of course, nobody can predict history. And how can you predict what's going to going to happen in the future, and so forth? Now what I can say for certain is that Aristotle Onassis would have not married Mrs. Khrushchev."

So I can't predict for certain what would have happened in the future, but I can say that, going forward, the reason I think our firm is in very good shape is this: Number one, the founders, whatever you might think about the founders, we're still around and we're pretty vibrant and this is what we do. Unfortunately, we are not such talented people that we have many other things to do. This is what we do. So the 3 of us have been running it for quite a while. We intend to keep running it for a while. I am prepared to announce today, following his Holiness' statement yesterday, that when I do turn 85, I will retire but probably not before that. So I am -- really love what I'm doing. And when you love what you're doing, it's not likely that you want to leave. So the other founders, who's -- the Co-chief Investment Officer with me -- or Co-chief Executive and co -- and Chief Investment, Bill Conway, he's committed to staying for quite a while; and Dan D'Aniello, the other Founder and now our Chairman, committed to staying. We have a deep bench beneath us, but we're going to stay for a while. And we think, therefore, we'll give a lot of continuous stability to the firm.

We have a lot of money already invested in the ground in very attractive deals, so we've got $62 billion of equity invested and $12 billion of hedge funds. And so as in the next couple of years, these deals should come out and mature and do pretty well and get us to kind of know what we've had over the years. We've averaged about 2.5x our multiple invested equity over the last 25 years and we think we can continue to do that. Rates of return may come down, but we think we can do something in that range.

We also think that we have diversified our business, We're not dependent just on buyouts. As I've said, we have a very large business in liquids -- liquid investments; Global Market Strategies is a very large business in real assets; and in, now, a very large business in fund of funds. We're also going to continue our push into emerging markets. We are the largest investor in the emerging markets in private equity, and we're dramatically going to increase that. Today, we have 12% of our entire workforce in China, all Chinese natives, and we will increase what we have in China and other emerging markets. We're the only global private equity firm with a dedicated fund in Brazil, for example; a dedicated fund in Sub-Saharan Africa; and we'll continue this push into emerging markets, which by the end of next year, we'll have a larger GDP overall in the developed markets. The overall GDP of the emerging markets in the next year will be bigger than the developed markets' GDP. And so we'll be well positioned for that.

We're also making a major push into individual and retail investment. You're going to see more and more individual and retail investors coming into private equity. They are now coming in so-called feeder funds, but they're coming in through feeder funds from JPMorgan or Credit Suisse or other comparable organizations. They're also coming in smaller firms like Raymond James, others. And we are well positioned to do that. We have a team of people focused only on that. We think we're going to get her than our fair share of individual investments money.

We're also well positioned in one of the greatest growth areas of all, which is energy. We've been a large investor in energy through our joint venture partner Riverstone. We've now changed our arrangement with Riverstone, and going forward, we're going to do different, many other platforms that we actually control. Among those are our Energy Mezzanine fund, then we have an energy infrastructure fund and we have recently made an investment in NGP, Natural Gas Partners. That will be our main domestic energy vehicle. And we have some other things that we're going to be doing that we'll announce soon to make it clear that energy remains one of our major investment pushes.

And going forward, we ultimately recognize that you have to transition to the next generation. The transitions in prive equity have been relatively unclear. Some firms have -- really haven't made any plans. We haven't announced any plans, but we have a very deep bench that's on our management committee and our operating committee. And that bench -- or many of those people, who have been with us for 15 and 20 years, will ultimately, while they're younger than us, they've been in the firm a long time, they ultimately will come in to senior management and help to run the firm.

So I think -- we think the firm is well positioned, going forward. We think our brand is very good. And that's the last thing I would mention: In the end, you have 7 global private equity firms today. They're based -- they're all based in the United States: Carlyle, Blackstone, PPG, KKR, Apollo, Bain and Oaktree. These 7 all have $75 billion of -- or assets under management or more. No firm outside United States has this much -- these kind of global private equity firms. There are reasons for that, but it -- in -- for the next 5 years or so, it's unlikely that there'll be any global private equity firm built anywhere outside the United States. And therefore, these 7 firms will still be the dominant firms. They may change their relative positions but they will probably be the dominant firms. What all of them are doing is following a strategy that we, more or less, pioneered of having multiple funds and globalizing. We think we're still a leader in doing that, but we're also a leader in building our brand. And brand is increasingly important because in -- as individual investors come in, as we get to be better known around the world and as you spend more time around world, your brand is extremely important. And at some point, I don't know if we'll be the first, but some firms like us will probably do an ad on the Super Bowl, saying, "Well, remember, here's Carlyle. It's private equity." But there will be some ad trying to make sure in the public's mind the name is considered to be synonymous with high quality, high investment returns, integrity. And we are trying to make sure our brand is known with those qualities. And increasingly, we're going to focus on our brand and make sure people recognize what we've built. And what will likely to become in the next couple of years will be similar to what we've done over the last couple of years.

So I want to thank you all for letting me give you a little summary of the private equity market in Carlyle. And now Howard, would be happy to take any questions. Thank you.

Question-and-Answer Session

Howard Chen - Crédit Suisse AG, Research Division

So we want to make sure we get to all of your questions, but I thought we could spend a few minutes in -- and again dig into some of the things that you noted, David. First, the perpetual fundraising capabilities. You -- I think of it as a real key competitive advantage for Carlyle vis-a-vis your primary competitors. So when you go and your team goes and sees your limited partners today, what's top of mind to them? And can you paint us a picture of the fundraising lines here?

David M. Rubenstein

Fundraising, obviously, is more challenging than it was in 2007. That was the highest year for fundraising and for us, as well, in our fundraising. It's more challenging because investors move more slowly. There's more competition. The average private equity fund takes 16 months to raise, and there are now probably 1,600 funds in the market. So it takes a long time to raise, investors want you to come back 2 and 3 and 4 times. And they don't want you to do it by videoconference, they want you to just come in person. We have 70 people who are fundraising for Carlyle, and that's the largest, I think, in the private equity world. They are based all over the world and these are people who work full time for Carlyle. And we have many products in the markets. So when we go out to see investors, we -- if they aren't interested in a particular area, we may probably have something in another area. What investors want now is they want the solidity of a brand name that they know, is likely to be around, because these are 10-year commitments people often make and they want to make sure the organization is going to be around. Secondly, they want more transparency than they used to get. They want to know how their money is being valued and what we are doing, so you have to give much more information with them before. Third, they want the opportunity for liquidity. And they want -- in some cases that they need to get out sooner than 10 years, they want the feeling that they can. And because we often have special facilities that enable them to do that, they're comfortable with our being able to provide that. But clearly, our brand name enables them to sell their positions in the secondary market if they want to do that. And you're also seeing that investors are skeptical about some certain things a private equity is skeptical about: some of the fees, skeptical about certain things; not the 20% carry but deal fees and other things that we haven't been a big user of. So investors are more skeptical, they're more wary. They want probably things that they didn't ask for many years ago. But on the whole, I think investors have done 2 things. They've recognized that private equity does get pretty good rates of return relative to everything else; and secondly, that they're willing to take lower rates of return than they were 25 years ago or 20 years ago or 15 years ago, so the alternatives are much worse. We're not going to average probably in going forward 30% per annum for the next 25 years. So I think investors are very happy with high-net teens returns. I think that's achievable by us.

Howard Chen - Crédit Suisse AG, Research Division

You noted some of the efforts that you and your team are going about in terms of high-net-worth LP diversification efforts. If you looked across your 1,400 limited partners, what does that base of LPs look like today versus 10 years ago? And 10 years from now, who do you think is the best product?

David M. Rubenstein

In 1978, the U.S. government -- I was in the government then, but I had nothing to do with it. ERISA -- the people who administered the ERISA programs that Department of Labor set: For the first time, public pension funds in the United States can invest in private equity. And because public pension funds have a big gap between the amount of money they promised and the amount of money they have to give out, they thought they needed higher rates of returns. So public pension funds in the United States went enormous amounts into private equity. Now I think, the State of Washington or the 25% allocation for private equity, CalPERS might be 14%. They are going in and they've been the largest single investors. But there's a big change: Now you're seeing sovereign wealth funds coming in. The sovereign wealth funds don't have to pay out capital and they have a lot more money they have -- than they had years ago. So sovereign wealth funds are becoming a major investor. Individual Investors are becoming, as I mentioned earlier, a bigger force. They are being rounded up in feeder funds, or the equivalent. And they are, I think, going to be the wave of the future. One of the waves of the future will actually be, as well, retail investors. I think, eventually, you will have, not too long from now, nonaccredited investors who today can't go onto private equity, nonaccredited investors eligible to go into a 401(k) checkoff plan than a Fidelity or 2 replacement offer for private equity funds. And I think the SEC and the Congress will ultimately let that happen, and that will be another major source of capital for people like us.

Howard Chen - Crédit Suisse AG, Research Division

David, shifting over to deployment. In the back half of last year, we saw Carlyle really step-up the amount of money the you've put in the ground for your limited partners. The markets have rallied significantly since then. The debt financing markets seems pretty vibrant. So as you, Bill Conway and the team takes the back and think about the investment landscape today, how comfortable are you with putting money in the ground? And where are you seeing incremental opportunities across the firm?

David M. Rubenstein

Well, first, the macroeconomic factors have gotten better. I think U.S. growth was lower last year than it's likely to be this year. And despite the machinations that you see going on in Congress, I don't think that Congress is going to do anything that's going to be deleterious to the country's economy. I think that markets have recognized that we're not going to avoid our debt, we're not going to not pay our debt. We're not going to shut the government down. So I think the economy is really doing quite well because manufacturing is increasing in a higher pace than the growth. Generally, the economy doubled the pace of the -- both the economy. Energy revolution has made it possible to produce things in this country, manufacturing at very low energy rates. And also the housing market has bottomed out and now coming back, and so is the construction business. So I suspect that the economy in the United States will probably grow at 3% or so this year. We think that Europe, while it's in a recession, will probably get out there by the latter part of this year. And the euro has stabilized and if anything, it's become highly valued and not likely to go out of business. We were worried a year ago when the euro would fall apart. I think Asia is going to continue to show high growth. China will probably grow more than it did last year. So generally, we're pretty bullish on that investment prospects. There'll be ups and downs, but we don't see any global recession happening and we don't see any kind of high cataclysmic event that all of a sudden is going to make that U.S. economy plunge into a recession.

Howard Chen - Crédit Suisse AG, Research Division

On this continuing theme of diversifying away from just being a domestic private equity firm to a fully fledged global diversified alternative asset manager, I wanted to touch on a few of the growth initiatives that you have going on. First is on real estate: Can you -- it's an asset class where it's tremendously changed since the financial crisis. Can you talk about what Carlyle is doing within real estate? When you speak to your limited partners, what's their appetite to put money within the asset class again?

David M. Rubenstein

We offer to buy out the optimistic real estate business in the United States, Europe and Asia. The opportunistic real estate is real estate that's trying to get close to a 20% rate of return. It kind of arose after the late '80s when the RTC existed in the United States and the government took over the real estate that own -- a lot of banks and S&Ls owned, and ultimately sold it off at low prices. And ultimately, people got very high rates of return. That was the first time people thought you can get private equity-like returns in real estate. So the whole business of opportunistic real estate then grew. But today, it's harder to get those returns and a lot of investors are happy with lower rates of return with lower risks. So a whole business has grown up in the United States now and around the world have called core-plus real estate where you're getting more than a 4% to 6% rate of return, which is probably the average rate of return for real estate. You're getting a return of 8% to 12%, or so-called "core-plus". And we are looking at moving into that area as well, but our core business has been opportunistic real estate and we think real estate is something that investors like because they can touch it, they can see it, they can feel it. Particularly international investors, they like knowing that there's a building that they own, or own a piece of it. So I think that business will continue to grow.

Howard Chen - Crédit Suisse AG, Research Division

And you noted Global Market Strategies, your liquids business, all the efforts that you've made as being a CLO manager, as well as hedge funds. What's the next stage and phase of that business? What do you want to be? What don't you want to be?

David M. Rubenstein

Well, that's a business where we have -- for our liquid business, as you say, we will probably try to -- we are the -- we were the -- a largest issuer of CLOs in the United States last year. We continue to issue CLOs. And we think, as long as the market's there, we will probably try to do something in Europe. The European CLO market has not been as vibrant and has slowed down, and we hope to be a leader in that market as well. We expect that our hedge funds will do continuously well. And we will look at other hedge fund opportunities but particularly in emerging markets where there's a lot of good hedge fund opportunities and things where we can buy, maybe even a minority stake in some companies, and watch them grow as we help them. What we find is a lot of people want to be on our platform, be part of Carlyle, because we can help them with fundraising. We've bought a number of hedge funds, and they ultimately ask us to help them raise money because they didn't have the resources to do so or the facilities or the contacts, and we're able to help in that way. And I expect we'll continue to do -- make acquisitions as well as grow internally some new product vehicles.

Howard Chen - Crédit Suisse AG, Research Division

Great. And final one before we open it to the audience. But such a key feature of the growth of the franchise has been creating this value for your limited partners and, now, your public shareholders and then distributing that back. So as you look at all of what the firm has in the ground globally, how are you thinking about the ability to kind of sustain the next leg of that monetization and realization activity?

David M. Rubenstein

Well, our firm has been pretty consistent. We call what we are as a "Steady Eddy". In other words, we don't -- carried interest is really what the business has historically been about: Producing distributions for your investors from good sales and IPOs or whatever liquification might be and getting 20% of the profits for yourself. That's what the business has been about and that's how we've really grown our business. So we obsess over getting money back to investors with good rates of return, don't hold on to the money too long. And ultimately, if we have enough companies that we can sell from time to time, we're going to do this on a consistent bases. We own 210 companies around the world. No other private equity firm has anything close to that. So we continuously can sell things in Europe or Asia, the United States, and get consistent rates of returns back. And that's what our main focus is, it's to get money back to investors. And we think we can continue to do that, in part because the team is still there that produced a lot of these deals before and we also have so much money in the ground that, if we do nothing, we invest nothing over the next 2 or 3 years, there'll be a very good distribution from all the money we have in the ground, $62 billion of private equity that's ours in the ground now. And if it comes out at the level we expect it will, we'll produce $3 billion to $4 billion of distributions for our investors in our funds over the next couple of years.

Howard Chen - Crédit Suisse AG, Research Division

Great. Let's take some questions from the audience. Please raise your hand if you have one. We'll get a microphone over here.

Unknown Analyst

One of the biggest questions that I and some of my colleagues have is -- the distortions within the fixed income markets with these incredibly low rates has potentially created the questions about what actually is reality in our system, with all the monetary Aussie easing [ph]. Could you talk a little bit about how you see the low interest rates and the Fed stimulating and how that maybe has created maybe artificial things and how that unwinds and how you think that affects business cycles in your business?

David M. Rubenstein

Okay. While there's no doubt that interest rates are not going to stay this low forever, the Fed has decided they're going to keep it low. They said that, by the end of 2014, and unless growth occurs dramatically higher, I think the Fed will keep interest rates very low. And we can keep them low, in part because, even though our credit rating as a country is lower than it was a couple of years ago, foreign buyers of our debt are still willing to buy our debt at very low interest rates. If all of a sudden the Chinese, the Saudis, the Japanese and others said, "We want 3% or 4% to buy 10-year treasury bills," we couldn't sustain this. Right now, because there are no other great alternatives for them, they're willing to put their money in U.S. treasuries in relatively low interest rates. At some point, I'd suspect the Fed will say, "We're having higher growth than we can afford to come back into more normalized interest rates." Now the way -- in the private equity business, obviously, low interest rates are not harmful, they're helpful in many respects. When we want to sell something, people who want to buy things from us can borrow money at relatively cheap prices. When we want to buy something, we can borrow at relatively cheap prices. However, I would point out that, when interest rates were higher, the private equity business still did reasonably well. You paid more for companies, perhaps, in terms of interest charges, but you adjusted that in your prices, and therefore you had lower prices that you were paying. Today, because interests rates are relatively low, prices have crept up a bit because people know they can afford the financings at maybe slightly higher prices because interest charges will be lower than they expected it would be. I -- that's been a great boon for us in many of the businesses we bought recently. Our interest charges, annually, are much lower than we anticipated when we made the investment. I suspect that it will continue for a while, but at some point, there will be a higher -- higher interest rates. I just don't know when that will be. I think the greatest fortune that we made in the next couple of years will be by the next John Paulson or equivalent, who will say interest rates are going to turn in 6 months, 9 months, 12 months in a structured of financial vehicle derivatives that takes advantage of the turn of the markets. It will happen, I just don't know exactly when it will occur.

Unknown Analyst

David, can you help us think about the role that private equity will have in the consolidation for the traditional asset management industry? Because you've seen several companies enter into this space both organically and also through acquisitions.

David M. Rubenstein

You mean existing asset managers in the traditional.

Unknown Analyst

Yes. So M&A into traditional.

David M. Rubenstein

Well, I think that the private equity firms, the 7 that I've mentioned today, they are large, global, diversified and they're pursuing more and more diversification. I suspect, at some point, one or more of them will do, what I'll call, cross the Rubicon and buy an asset manager themselves, not a one that has alternative features to it but just a traditional long-only manager. I don't know when that will occur. We're not working on such a thing. And I suspect, as these firms grow, they will look at themselves as AUM machines, to some extent, as opposed to carried interest machines. And as a result, some of them may cross the Rubicon and some of them might buy a traditional asset manager. I also expect, in turn, that some of the traditional asset managers like BlackRock or others may say, "Well, we might buy an alternative asset manager to give us more heft in that area, which is increasing of interest to our existing investors." I think that some consolidation will occur. I don't know of anything in the works now, but I would not be surprised in the next 2 years if some traditional large asset manager bought a very large alternative manager and, in turn, an alternative manager started buying some more traditional asset managers.

Howard Chen - Crédit Suisse AG, Research Division

Yes?

Unknown Analyst

I'm curious. After a long time being a -- basically a private company in the IPO last year, and then your first foray into the public debt markets this year. And then you talked a little bit about the introduction of clients being able to get liquidity back out for the 10-year close period. How is that changing the way you manage the company?

David M. Rubenstein

Well, when you take a company public and you -- your stock price goes up by 50% in 6 months or so, you're not getting beat up by a lot of shareholders claiming you're terrible, and trying to throw you out or something. So it hasn't really -- I mean, I'm -- whatever we did to get us to where we are today, which is what we're doing, we haven't -- we don't really obsess over the unitholders as much as maybe they wish we would. Our theory -- when we took the company publicly, we said we built the company for the investors. If we do well for the investors, unitholders will do okay. And remember, 80% of the unitholders work in the firm, so 80% of the company is really controlled by people who work there. And so we are aligned with the unitholders, but we haven't done much to change the firm's operations. We're kind of doing what we did. And I don't suspect we'll change a lot. If the stock price were to go down by 50%, maybe somebody will be ready to kick me out, but for the time being, people seem reasonably happy. I did like the IPO process. Obviously, we disrupted the private equity business by going public and having a stock go up, not go down. And when I raised private equity money, I have to go see people 3 and 4 times before they make a decision. When I did the IPO, 45 minutes, that's all you get, they make a decision, yes or no. And the same was true in the debt market, it was about a 4-day road show. I found those to be relatively easy compared to what I'm used to. But I -- today, we obviously care about the unitholders, but we aren't running the firm for the unitholders. We're really running the firm for the investors. Our theory is, if we get money back to the investors and we are measured by that, we will ultimately be measured successfully by the unitholders. And I do think that our ability to get money back to investors, which really dwarfs what other people do in this business, is the metric that we should be measured by. And increasingly, I think people will look at that as the appropriate metric by which private equity firms should be measured when they go public.

Howard Chen - Crédit Suisse AG, Research Division

Great. With that, let's end it there. Please join me in thanking David and the team.

David M. Rubenstein

Thank you.

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